FINANCIAL STATEMENTS Dhul Hijjah 30, (October 13, 2015) With INDEPENDENT AUDITOR S REPORT
FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT Dhul Hijjah 30, (October 13, 2015) CONTENTS Page Independent auditor s report 1 Statement of financial position 2 Statement of income 3 Statement of cash flows 4 Statement of changes in members equity 5 Notes to the financial statements 6-27
STATEMENT OF FINANCIAL POSITION As of Dhul Hijjah 30, (October 13, 2015) Dhul Hijjah Dhul Hijjah Notes 30, 29, ASSETS: Cash and cash equivalents 4 216,263,052 147,625,799 Commodity placements through financial institutions 5 220,231,984 188,009,961 Murabaha financing 6 60,763,402 65,262,314 Accrued income and other assets 7 151,042,521 147,161,390 Installment sales financing 8 147,960,283 154,875,526 Investments 9 844,826,302 741,696,887 Ijarah Muntahia Bittamleek 10 68,214,860 74,803,373 Property and equipment 11 989,898 1,527,205 TOTAL ASSETS 1,710,292,302 1,520,962,455 LIABILITIES AND MEMBERS EQUITY: Liabilities: Wakala borrowings 12 683,552,515 509,665,780 Accruals and other liabilities 13 9,955,407 41,492,477 Amounts due to ICD Solidarity Fund 14 927,513 890,486 Total liabilities 694,435,435 552,048,743 Members equity: Share capital 15 865,430,770 798,998,280 Reserve 16 150,426,097 169,915,432 Total members equity 1,015,856,867 968,913,712 TOTAL LIABILITIES AND MEMBERS EQUITY 1,710,292,302 1,520,962,455 The attached notes from 1 through 29 form an integral part of these financial statements 2
STATEMENT OF INCOME For the year ended Dhul Hijjah 30, (October 13, 2015) Notes Income: Commodity placements through financial institutions 7,348,634 10,719,645 Murabaha financing 3,379,226 3,926,692 Installment sales financing 13,160,322 11,695,281 Investments 9.6 50,405,997 48,411,687 Ijarah Muntahia Bittamleek 19,853,857 24,446,776 Administrative fees 2,164,401 4,550,885 Advisory fees 566,667 5,031,208 Mudarib fees 20 309,034 1,317,702 Total Shari ah compliant income 97,188,138 110,099,876 Depreciation on assets under Ijarah Muntahia Bittmaleek 10 (12,399,336) (18,040,229) 84,788,802 92,059,647 Income from non-shari ah compliant placements 14 203,419 584,614 Transferred to ICD Solidarity Fund 14 (203,419) (584,614) Total operating income 84,788,802 92,059,647 Expenses: Staff cost (26,508,002) (23,180,204) Other administrative expenses (9,849,415) (10,965,420) Depreciation on property and equipment 11 (641,742) (667,317) Financing costs 12 (7,740,882) (6,428,295) Total expenses (44,740,041) (41,241,236) Foreign exchange loss (223,261) (593,851) Fair value gains on derivatives 7 776,374 1,171,182 Income before provision for impairment of financial assets 40,601,874 51,395,742 Provision for impairment of financial assets, net 19 (20,091,209) (25,135,922) Net income for the year 20,510,665 26,259,820 The attached notes from 1 through 29 form an integral part of these financial statements 3
STATEMENT OF CASH FLOWS For the year ended Dhul Hijjah 30, (October 13, 2015) Notes Cash flows from operating activities Net income for the year 20,510,665 26,259,820 Adjustments to reconcile net income to net cash utilized in operating activities: Depreciation 17 13,041,078 18,707,546 Provision for impairment of financial assets, net 19 20,091,209 25,135,922 Unrealized fair value gain 9 (38,185,598) (43,751,424) Profit on disposal of vehicles - (19,449) Fair value gains on derivatives (776,374) (1,171,182) Changes in operating assets and liabilities: Commodity placements through financial institutions (32,222,023) (103,396,460) Murabaha financing 4,498,912 (7,867,122) Accrued income and other assets (5,140,922) (15,598,024) Installment sales financing 6,915,243 (39,658,923) Investments (79,810,750) (71,509,670) Ijarah Muntahia Bittamleek (8,998,934) (38,845,792) Accruals and other liabilities (35,220,135) (73,883,775) ICD Solidarity Fund 37,027 488,032 Net cash utilized in operating activities (135,260,602) (325,110,501) Cash flows from investing activities Purchase of property and equipment 11 (104,435) (439,015) Proceed from disposal of motor vehicles - 32,974 Net cash utilized in investing activities (104,435) (406,041) Cash flows from financing activities Share capital contribution 30,115,555 49,192,170 Repayments against Wakala borrowings (494,665,772) (635,321,135) Proceeds from Wakala borrowings 668,552,507 936,779,647 Net cash generated from financing activities 204,002,290 350,650,682 Net change in cash and cash equivalents 68,637,253 25,134,140 Cash and cash equivalents at beginning of the year 147,625,799 122,491,659 Cash and cash equivalent at end of the year 4 216,263,052 147,625,799 The attached notes from 1 through 29 form an integral part of these financial statements 4
STATEMENT OF CHANGES IN MEMBERS EQUITY For the year ended Dhul Hijjah 30, (October 13, 2015) Note Share capital Reserve Net income Total Balance as at Dhul Hijjah 29, 1434H 749,806,110 143,655,612-893,461,722 Contributions during the year 49,192,170 - - 49,192,170 Net income for the year - - 26,259,820 26,259,820 Transfer to reserve - 26,259,820 (26,259,820) - Balance at Dhul Hijjah 29, 798,998,280 169,915,432-968,913,712 Contributions during the year 30,115,555 - - 30,115,555 Net income for the year - - 20,510,665 20,510,665 Transfer to reserve - 20,510,665 (20,510,665) - Dividends in form of : 16 - Shares 36,316,935 (36,316,935) - - - Cash - (3,683,065) - (3,683,065) Balance at Dhul Hijjah 30, 865,430,770 150,426,097-1,015,856,867 The attached notes from 1 through 29 form an integral part of these financial statements 5
For the year ended Dhul Hijjah 30, (October 13, 2015) 1. INCORPORATION AND ACTIVITIES Islamic Corporation for the Development of the Private Sector (the Corporation ) is an international specialized institution established pursuant to the Articles of Agreement signed and ratified by its members. The Corporation commenced its operations following the inaugural meeting of the General Assembly held on Rabi Thani 6, 1421H, corresponding to July 8, 2000. According to the Articles of Agreement establishing the Corporation, the objective of the Corporation is to promote, in accordance with principles of Shari ah, the economic development of its member countries by encouraging the establishment, expansion, and modernization of private enterprises producing goods and services in such a way as to supplement the activities of Islamic Development Bank ( IDB ). The Corporation, as a multilateral financial institution, is not subject to any external regulatory authority. It operates in accordance with the Articles of Agreement establishing the Corporation and the internal rules and regulations of the Corporation. The Corporation carries out its business activities through its headquarters in Jeddah, Saudi Arabia. The Corporation s financial year is the lunar Hijra year. The financial statements were authorized for issue in accordance with the resolution of the Board of Directors dated Jumada II 19, 1437H (March 28, 2016). 2. SIGNIFICANT ACCOUNTING POLICIES a) Basis of preparation These financial statements are prepared in accordance with the Financial Accounting Standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Shari ah rules and principles as determined by the Shari ah Committee of the Corporation. For matters, which are not covered by AAOIFI standards, the Corporation uses the relevant standard issued or adopted by the International Accounting Standards Board (IASB) and the relevant interpretation issued by the International Financial Reporting Interpretations Committee of IASB. The preparation of financial statements requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities. It also requires management to exercise its judgment in the process of applying the Corporation s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3. During the year ended Dhul Hijjah 29, 1434H (Corresponding to November 3, 2013), the Corporation early adopted the Investment Entities amendments to IFRS 10 Consolidated financial statements, IFRS 12 Disclosure of interest in other entities and IAS 27 Separate financial statements (the Amendments ) which are effective from the period beginning 1 January 2015. Accordingly, the Corporation did not prepare the consolidated financial statements and applied the transition guidance on amendments to IFRSs 10 and 12, all effective from the period beginning 1 January 2015, in so far it relates to the adoption of amendments related to investment entities. IFRS 10 Consolidated financial statements and amendments to IFRS 10: the objective of IFRS 10 is to establish the principles for the presentation and preparation of consolidated financial statements. The amendments to IFRS 10 define an investment entity and introduce an exception from consolidation requirements for investment entities. IFRS 12 Disclosure of interest in other entities and amendments to IFRS 12: The standard requires entities to disclose significant judgments and assumptions made in determining whether the entity controls, jointly controls and significantly influences or has some other interests in other entities. The amendments also introduced new disclosures requirements related to investment entities. Adoption of the standard has affected ICD s level of disclosure in certain of the above noted areas but has not affected the Corporation s financial position or results of operations. 6
For the year ended Dhul Hijjah 30, (October 13, 2015) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) IAS 27 (Revised), Separate financial statements and amendment to IAS 27: The objective of the standard is to prescribe the accounting and disclosure requirements when an entity prepares financial statements. The Amendment requires an investment entity as defined in IFRS 10 to present the separate financial statements as its only financial statements where it measures all of its subsidiaries at fair value through statement of income and to disclose that fact. Investment entity An investment entity is an entity that: (a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; (b) commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and c) measures and evaluates the performance of substantially all of its investments on a fair value basis. The Corporation meets the definition and typical characteristics of an investment entity as described in the Amendments which are effective from 1 January 2015. In accordance with the Amendments, an investment entity is required to account for its investments in subsidiaries and associates at fair value through statement of income. b) Accounting convention The financial statements are prepared under the historical cost convention modified for the measurement at fair value of investments. c) Foreign currency translations i) Functional and presentation currency These financial statements are presented in United States Dollars ( USD ) which is the functional and presentation currency of the Corporation. ii) Transactions and balances Transactions in currencies other than USD ( foreign currencies ) are recorded at the exchange rates prevailing at the dates of the respective transactions. Assets and liabilities denominated in foreign currencies are translated to USD at the date of the statement of financial position. Foreign currency exchange gains and losses are credited or charged to the statement of income. Non-monetary items measured at historical cost denominated in a foreign currency are translated at the exchange rate ruling at the date of initial recognition. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. d) Cash and cash equivalents Cash and cash equivalents comprise bank balances and commodity placements through financial institutions having a maturity of three months or less at the date of acquisition. e) Commodity placements through financial institutions Commodity placements are made through financial institutions and are utilized in the purchase and sale of commodities at a fixed profit. The buying and selling of commodities is limited by the terms of agreement between the Corporation and other Islamic and conventional financial institutions. Commodity placements are initially recorded at cost including acquisition charges associated with the placements and subsequently measured at cost less any provision for impairment. 7
For the year ended Dhul Hijjah 30, (October 13, 2015) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) f) Murabaha Murabaha financing receivables are agreements whereby the Corporation sells to a customer a commodity or an asset, which the Corporation has purchased and acquired based on a promise received from the customer to buy. The selling price comprises the cost plus an agreed profit margin. Amounts receivable from Murabaha receivables are stated at the cost of the commodity or assets plus accrued profits less repayments received and provision for impairment. g) Installment sales financing Installment sales financing receivables are agreements whereby the Corporation sells to a customer a commodity or an asset, which the Corporation has purchased and acquired based on a promise received from the customer to buy. The selling price comprises the cost plus an agreed profit margin. Amounts receivable from Installment sales are stated at the selling price of the commodity or asset less unearned income to the date of the statement of financial position, less repayments received and provision for impairment. h) Investments Equity-type investments (i) Subsidiaries An entity is classified as a subsidiary of the Corporation if the Corporation can exercise control over the entity. Control is power to govern the financial and operating policies of an entity with the objective of earning benefits from its operation. Control is presumed to exist if the Corporation holds, directly or indirectly through its subsidiaries, 50 per cent or more of the voting rights in the entity, unless it can be clearly demonstrated otherwise. Conversely, control may also exist through agreement with the entity s other shareholders or the entity itself regardless of the level of shareholding that the Corporation has in the entity. The adoption of the Amendments exempted ICD from the consolidation of the subsidiaries. The Corporation measures and evaluates the performance of substantially all its subsidiaries on a fair value basis because using fair values results in more relevant information. As per the Amendments, investments in subsidiaries are measured at fair value through statement of income. These investments are initially and subsequently measured at fair value. Any unrealized gains or losses arising from the measurement of subsidiaries at fair value are recognized directly in the statement of income. (ii) Associates An entity is classified as an associate of the Corporation if the Corporation can exercise significant influence on the entity. Significant influence is presumed to exist if the Corporation holds, directly or indirectly through its subsidiaries, 20 per cent or more but upto 50% of the voting rights in the entity, unless it can be clearly demonstrated otherwise. Conversely, significant influence may also exist through agreement with the entity s other shareholders or the entity itself regardless of the level of shareholding that the Corporation has in the entity. The adoption of the Amendments requires investments in associates to be measured at fair value through statement of income. These investments are initially and subsequently measured at fair value. Any unrealized gains or losses arising from the measurement of associates at fair value are recognized directly in the statement of income. 8
For the year ended Dhul Hijjah 30, (October 13, 2015) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (iii) Other investments The Corporation has investments in entities where the Corporation does not have significant influence or control. These investments are classified as investments at fair value through statement of income. Such investments are initially measured at fair value plus transaction costs and subsequently re-measured at fair value. Any unrealized gains and losses arising from the re-measurement in their fair value are recognized directly in the statement of income. Equity investments whose fair value cannot be reliably measured are carried at cost, less provision for impairment, if any, in the value of these investments. Debt-type investments (iv) Investments in Sukuk Investments in Sukuk are debt instruments and have determinable payments and fixed maturity dates and bear a coupon yield. Sukuk are acquired with the positive intent and ability to hold them to contractual maturity and are classified as investments carried at amortized cost. Investments in Sukuk are initially recognised at fair value plus transaction costs, if any, and subsequently measured at amortised cost less any impairment provision. i) Ijarah Muntahia Bittamleek These consist of assets purchased by the Corporation either individually or as part of syndication with other entities and leased to beneficiaries for their use in Ijarah Muntahia Bittamleek agreements whereby the ownership of the leased assets is transferred to the beneficiaries at the end of the lease term and the completion of all payments under the agreement. The assets are stated at their acquisition cost less accumulated depreciation up to the date of the statement of financial position. The assets are depreciated using the straight-line method over the related lease period. No depreciation is recorded in respect of assets not yet put to use. j) Impairment of financial assets (i) Investments An assessment is made at each statement of financial position date to determine whether there is objective evidence that an investment carried at cost may be impaired. If any evidence exists of impairment for the investment carried at cost, the cumulative loss, measured as the difference between the acquisition cost and the current recoverable amount or fair value, less any impairment loss on the investment in equity previously recognised in the statement of income is recognised in the statement of income. Impairment losses on equity investments previously recognised in the statement of income are not subsequently reversed through the statement of income. (ii) Other financial assets The Corporation determines the provision for impairment losses based on an assessment of incurred losses. An assessment is made at each financial position date to determine whether there is an objective evidence that a financial asset or a group of financial assets may be impaired. The impairment loss results from the difference between the carrying amount of the asset and the net present value of the expected future cash flows discounted at the implicit rate of return from the financial asset. The impairment provision is periodically adjusted based on a review of the prevailing circumstances. Impairment losses are adjusted through the use of an allowance account. When a financial asset is not considered recoverable, it is written off against the allowance account. Subsequent recoveries of amounts previously written-off are credited to the statement of income. 9
For the year ended Dhul Hijjah 30, (October 13, 2015) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) k) Property and equipment Property and equipment are recorded at cost and are depreciated using the straight-line method over their estimated useful lives as follows: Furniture and fixtures 15% Computers 33% Motor vehicles 25% Other equipment 20% Maintenance and repair costs, if any, are expensed as incurred. When the carrying amount of an item of property and equipment is higher than its recoverable amount, it is written down immediately to its recoverable amount. Gains or losses on disposals are determined by comparing sale proceeds with carrying amount. These are included in the statement of income. l) Post-employment benefits plan The Corporation subscribes to the group pension plan of IDB. Under the plan, the staff members contribute a fixed percentage of their remuneration monthly and the Corporation contributes the proportionate balance of the cost of funding the plan based on regular actuarial valuations. The contributions accumulated to date are managed and invested by IDB. m) Revenue recognition (i) Commodity placements through financial institutions Income from commodity placements through financial institutions is recognized on a time apportionment basis over the period from the actual disbursement of funds to the date of maturity. (ii) Non-Shari ah compliant placements Any income from cash and cash equivalents, commodity placements through financial institutions and other investments, which is considered by management as forbidden by Shari'ah, is not included in the Corporation s statement of income but is recorded as a liability to be utilized for charitable purposes. (iii) Murabaha and Installment sales financing Income from Murabaha and Installment financing receivables are accrued on a time apportionment basis over the period from the date of the actual disbursement of funds to the scheduled repayment date of installments. (iv) Istisna a The Corporation uses the deferred profits method for recognizing Istisna a income on Istisna a assets whereby there is a proportionate allocation of deferred profits over the future financial period of the credit. (v) Ijarah Muntahia Bittamleek Income from Ijarah Muntahia Bittamleek and operating Ijarah are allocated proportionately to the financial periods over the Ijarah contract. (vi) Dividends Dividends are recognized when the right to receive the dividends is established. 10
For the year ended Dhul Hijjah 30, (October 13, 2015) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (vii) Mudarib fee Mudarib fee is recognized on accrual basis when the services have been performed. (viii) Administrative fee and advisory fee Income from administrative and advisory services is recognized based on the rendering of services as per contractual arrangements. (ix) Investment in Sukuk Income from Sukuk investment is accrued on time apportionment basis in accordance with the terms of the Sukuk investment with respect to the rate of return. n) Zakat and tax The Corporation, being a multilateral financial institution, is not subject to Zakat or taxation in the member countries. The Corporation s equity is part of Baitul Mal, which is not subject to Zakat. o) Offsetting Financial assets and financial liabilities are only offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognized amounts and the Corporation intends to either settle on a net basis, or to realize the asset and settle the liability simultaneously. p) Derivative financial instruments Derivatives financial instruments represent foreign currency forward contracts and are used by the Corporation to mitigate the risk of foreign currency exposure related to its investments in Sukuk. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value at the end of each reporting date. The resulting gains or losses on re-measurement are recognised in the statement of income. Derivatives with positive fair values or negative fair values are reported under the accrued income and other assets or accruals and other liabilities, respectively, in the statement of financial position. q) Reclassification The following reclassifications have been made for better presentation in the comparative financial statements to conform to presentation: (i) Ijara Muntahia Bittamleek balance amounting to USD 0.15 million and related accrued income classified in Accrued income and other assets amounting to USD 1.9 million have been reclassified to Installment Sales Financing. (ii) Balance of a related party amounting to USD 1.1 million has been reclassified to Accrued income and other assets from Accounts payable and other liabilities. 3. CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES Estimates, assumptions and judgments are continually evaluated and are based on historical experience and other factors, including professional advices and expectation of future events that are believed to be reasonable under the circumstances. Significant areas where management has used estimates, assumptions or exercised judgments are as follows: i) Provision for impairment of financial assets The Corporation exercises judgment in the estimation of provision for impairment of financial assets. The methodology for the estimation of provision for impairment of financial assets is set out in Note 2 (j). 11
For the year ended Dhul Hijjah 30, (October 13, 2015) 3. CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES (continued) ii) Fair value determination The Corporation determines the fair value of substantially all of its investments at each financial year end. The fair value of investment that are not quoted in an active market is determined by using valuation techniques, primarily discounted cash flow techniques (DCF) and comparable price/book (P/B) multiples. In case of certain investments the fair value is determined on net asset value basis. In case of real estate companies, the valuations are performed on market based, cost based and income based approaches, as appropriate. Where relevant, the Corporation engages third party valuation experts. In the case of start-up companies and companies which are still in capital disbursement stage, management consider the cost of such investments (translated at the exchange rate ruling at the acquisition date) as an approximation of fair value at the statement of financial position date. The cost of investments in equity-type instruments made close to the reporting period date is considered by management to be equivalent to fair value. The models used to determine fair values are validated and periodically reviewed by management. The inputs in the DCF and comparable P/B multiples models include observable data, such as discount rates, terminal growth rate, P/B multiples of comparable companies/banks to the relevant portfolio of company/bank, and unobservable data, such as the discount for marketability. The Corporation has also considered the geopolitical situation of the countries where the investee companies are situated and has taken appropriate discount on their values. In certain cases the Corporation has applied marketability and liquidity discounts of 10%. 4. CASH AND CASH EQUIVALENTS Cash and cash equivalents at the end of Dhul Hijjah comprised of the following: 12 Cash at banks 41,312,674 30,717,834 Commodity placements through financial institutions (Note 5) 174,000,000 116,000,000 Cash and cash equivalent 215,312,674 146,717,834 Bank balance relating to ICD Solidarity Fund 950,378 907,965 216,263,052 147,625,799 Certain bank accounts which are in the name of Islamic Development Bank are for the beneficial interest of the Corporation and such accounts are managed and operated by the Corporation. 5. COMMODITY PLACEMENTS THROUGH FINANCIAL INTITUTIONS Commodity placements through financial institutions at end of Dhul Hijjah comprised of the following: Commodity placements through financial institutions 394,231,984 304,009,961 Less: Commodity placements through financial institutions with an original maturity for a period of three months or less (Note 4) (174,000,000) (116,000,000) 220,231,984 188,009,961 6. MURABAHA FINANCING Murabaha financing at end of Dhul Hijjah comprised of the following: Murabaha financing 66,010,549 70,509,461 Less: Provision for impairment (Note 19) (5,247,147) (5,247,147) 60,763,402 65,262,314 All goods purchased for resale under Murabaha financing are made on the basis of specific purchase for subsequent resale to the customer. The promise of the customer is considered to be binding. Consequently, any loss suffered by the Corporation as a result of default by the customer prior to the sale of goods is charged to the customer.
For the year ended Dhul Hijjah 30, (October 13, 2015) 7. ACCRUED INCOME AND OTHER ASSETS Accrued income and other assets at end of Dhul Hijjah comprised of the following: Ijarah Muntahia Bittamleek installments receivable 97,464,185 92,278,550 Accrued income 10,036,979 17,961,540 Due from related parties (Note 18) 19,878,470 15,326,513 Proceeds receivable from sale of shares 9,561,338 9,561,338 Proceeds receivable on maturity of government certificates/ Sukuk (Note 7 (a)) 8,077,352 8,751,340 Housing advance and prepaid expenses 10,276,427 6,748,869 Arrangement fee receivable 2,144,660 2,144,660 Advances 1,182,937 1,648,625 Derivative financial instrument (Note 7 (b)) 1,947,556 1,171,182 Other receivables 6,522,801 7,461,980 167,092,705 163,054,597 Less: Provision for impairment (Note 19) (16,050,184) (15,893,207) 151,042,521 147,161,390 (a) (b) The amount of USD 8.1 million for which a provisioning of USD 4.3 million was provided represents receivable on maturity of Sukuk. On July 23, 2008 (Rajab 20, 1429H), the Corporation entered into an agreement with the counterparty to invest in Sukuk with an option of conversion of it into shares of the latter at the time of its going for an IPO. These Sukuk matured during 1431H and as at the end of, the amount is receivable from the counterparty as the IPO formalities has not yet commenced. During, the sponsor of the project has initiated the process with the Corporation to finalise the settlement of the receivable balance. The derivative financial instrument represents the foreign currency forward contract which is used to mitigate the risk of currency fluctuation for investments in Sukuk. The contractual amount of these derivatives is Euro 8.32 million (USD 11.59 million). The positive fair value of the derivative at the end of Dhul Hijjah is USD 1.95 million (1435: USD 1.17 million). 8. INSTALLMENT SALES FINANCING Installment sales financing receivable at end of Dhul Hijjah comprised of the following: Gross amounts receivable 170,323,308 170,587,554 Less: Unearned income (11,676,854) (5,025,857) 158,646,454 165,561,697 Less: Provision for impairment (Note 19) (10,686,171) (10,686,171) 147,960,283 154,875,526 All goods purchased for resale under installment sales financing are made on the basis of specific purchase for subsequent resale to the customer. The promise of the customer is considered to be binding. Consequently, any loss suffered by the Corporation as a result of default by the customer prior to the sale of goods is charged to the customer. 13
For the year ended Dhul Hijjah 30, (October 13, 2015) 9. INVESTMENTS Investments in equity capital and debt instruments as at the end of Dhul Hijjah comprised of the following: Equity investments 831,276,107 724,035,737 Sukuk investments (Note 9.5) 13,550,195 17,661,150 844,826,302 741,696,887 Equity investments Subsidiaries (Note 9.1) 350,407,871 307,560,612 Associates (Note 9.2) 407,032,106 330,658,206 Other 105,368,834 102,482,690 862,808,811 740,701,508 Less: Provision for impairment (Note 9.4) (31,532,704) (16,665,771) 831,276,107 724,035,737 The movement in investments for the year ended Dhul Hijjah is as follows: Balance at Muharram 1 724,035,737 635,476,848 Additions during the year 86,735,735 56,292,668 Disposals during the year (2,814,030) (2,444,148) Provision for impairment (Note 9.4) (14,866,933) (9,041,055) Unrealized fair value gains, net (Note 9.6) 38,185,598 43,751,424 Balance at end of Dhul Hijjah 831,276,107 724,035,737 9. 1 Investments in subsidiaries There are no regulatory or contractual arrangements that restrict the subsidiaries ability to transfer funds in the form of cash dividend or repay loans or advances made to them. The Corporation sometimes extends financial assistance in the form of advances to subsidiaries. However, it is not committed to provide financial or other support including commitments or intentions to assist the subsidiary in obtaining financial support. Effective ownership percentage in subsidiaries and their countries of incorporation at the end of the years and nature of business are as follows: Country of incorporation Nature of Business Effective ownership % Azerbaijan Leasing Azerbaijan Leasing 100 100 Ijarah Management Company Saudi Arabia Leasing 99 99 Taiba Leasing Uzbekistan Leasing 100 100 Alarabea Syrian Company Syria Manufacturing 100 100 Maldives Islamic Bank Maldives Banking 85 85 Tamweel Africa Holding Senegal Banking 60 60 Ewaan Al Fareeda Residential Co. Saudi Arabia Real estate 52 52 Capitas International Saudi Arabia Advisory service 51 51 Unit Investment Fund (UIF) Saudi Arabia Mutual Fund 56 56 ICD Asset Management Malaysia Asset Management 100 100 ASR Leasing LLC Tajikistan Leasing 67 67 Enmaa Ijarah Company Egypt Leasing 60 - IB Growth Fund Malaysia Private Equity Fund 100-14
For the year ended Dhul Hijjah 30, (October 13, 2015) 9. INVESTMENTS (continued) 9.2 Investments in associates Effective ownership percentage in associates and their countries of incorporation at the end of the years are as follows: Country of Effective ownership % incorporation Al Majmoua Al Mauritania Mauritania 50 50 Felix Airways Yemen 47 47 Anfaal Capital Company Saudi Arabia 38 38 Sante Alexandra Company Egypt 35 35 Burj Bank Pakistan 34 34 Injazat Technology Fund Bahrain 30 30 Jordan Pharmaceutical Manufacturing Company Jordan 22 28 Royal Atlantic Residence Gambia 25 25 Adritech Group International Jordan 25 25 Saba Islamic Bank Yemen 20 20 Arab Leasing Company Sudan 20 20 Kazakhstan Ijara Company Kazakhstan 36 36 Theemar Investment Fund Tunisia 43 43 Albania Leasing Albania 36 36 Saudi SME Fund Saudi Arabi 25 25 Al Fareeda Residential Fund Saudi Arabia 33 33 Al Sharkeya Sugar Egypt 25 25 Bidaya Home Finance Company Saudi Arabia 20 20 Palestine Ijarah Company Palestine 33 33 PMB Tijari Berhad Malaysia 20 20 Taha Alam Sdn Bhd Malaysia 50 50 Kygyzstan Ijara Company Kyrgyzstan 33 33 El Wifack Leasing Tunisia 30-9.3 Fair value of investments FAS 25 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Corporation s market assumptions. These two types of inputs have created the following fair value hierarchy: Level 1 Quoted prices (unadjusted) in active markets for identical investments. Level 2 Inputs other than quoted prices included within Level 1 that are observable for the investments, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3 inputs for the investments that are not based on observable market data (unobservable inputs). This hierarchy requires the use of observable market data when available. The Corporation considers relevant and observable market prices in its valuations where possible. 15
For the year ended Dhul Hijjah 30, (October 13, 2015) 9. INVESTMENTS (continued) Investments measured at fair value Level 1 Level 2 Level 3 Total Investments 38,734,499-762,745,694 801,480,193 Investments 5,584,292-656,469,733 662,054,025 Reconciliation of Level 3 items At Muharram 1 656,469,733 534,388,100 Unrealized fair value gains, net 28,122,969 44,882,472 Additions 62,512,665 43,658,051 Transfers from investment held at cost 27,247,128 35,205,116 Disposals (2,814,030) (1,664,006) Transfer to investments held at cost (8,792,771) - At end of Dhul Hijjah 762,745,694 656,469,733 Included in investments as at Dhul Hijjah 30, are investments net of impairment provision amounting to USD 29.79 million (: USD 61.98 million) where the fair value cannot be measured reliably because of non-availability of sufficiently reliable information for such determination. These investments are held net of provision for impairment of USD 31.53 million (: USD 16.67 million). 9.4 Movement in provision for impairment on investments At Muharram 1 16,665,771 7,624,716 Impairment charges booked during the year 14,866,933 9,041,055 At end of Dhul Hijjah (Note 19) 31,532,704 16,665,771 9.5 Sukuk investments Investments in Sukuk are in unrated Sukuk. 9.6 Investment income Unrealized fair value gains, net 38,185,598 43,751,424 Dividend 11,420,762 4,185,762 Income from Sukuk 799,637 474,501 50,405,997 48,411,687 16
For the year ended Dhul Hijjah 30, (October 13, 2015) 10. IJARAH MUNTAHIA BITTAMLEEK Ijarah Muntahia Bittamleek at the end of Dhul Hijjah comprised of the following: Cost: Assets not yet in use: At Muharram 1 - - Additions 8,998,934 38,991,174 Transferred to assets in use (8,998,934) (38,991,174) At the end of Dhul Hijjah - - Assets in use: At Muharram 1 186,600,576 200,239,831 Transferred from assets acquired 8,998,934 38,991,174 Assets transferred to beneficiaries - (52,630,429) At the end of Dhul Hijjah 195,599,510 186,600,576 Total costs 195,599,510 186,600,576 Accumulated depreciation: At Muharram 1 99,051,451 133,641,651 Charge for the year 12,399,336 18,040,229 Assets transferred to beneficiaries - (52,630,429) At the end of Dhul Hijjah 111,450,787 99,051,451 Balance at the end of Dhul Hijjah 84,148,723 87,549,125 Less: Provision for impairment (Note 19) (15,933,863) (12,745,752) Ijarah Muntahia Bittamleek, net 68,214,860 74,803,373 Certain of the assets referred to above represent the Corporation s share in joint Ijarah Muntahia Bittamleek agreements. 11. PROPERTY AND EQUIPMENT Property and equipment at the end of Dhul Hijjah comprised of the following: Furniture and fixtures Motor vehicles Other equipment Total Computers Cost: At Muharram 1 742,437 3,244,899 288,207 205,262 4,480,805 Additions during the year 55,485-48,950-104,435 Disposal - - - - - At Dhul Hijjah 30 797,922 3,244,899 337,157 205,262 4,585,240 Accumulated depreciation: At Muharram 1 591,323 2,178,974 80,923 102,380 2,953,600 Charge for the year Disposal 26,264-511,659-77,483-26,336-641,742 - At Dhul Hijjah 30 617,587 2,690,633 158,406 128,716 3,595,342 Net Book Value: At Dhul Hijjah 30, 180,335 554,266 178,751 76,546 989,898 17
For the year ended Dhul Hijjah 30, (October 13, 2015) 11. PROPERTY AND EQUIPMENT (continued) Property and equipment at the end of Dhul Hijjah comprised of the following: Furniture and fixtures 18 Motor vehicles Other equipment Total Computers Cost: At Muharram 1 590,430 3,169,651 342,176 205,262 4,307,519 Additions during the year 152,007 75,248 211,760-439,015 Disposal - - (265,729) - (265,729) At Dhul Hijjah 29 742,437 3,244,899 288,207 205,262 4,480,805 Accumulated depreciation: At Muharram 1 589,986 1,600,547 271,909 76,045 2,538,487 Charge for the year Disposal 1,337-578,427-61,217 (252,204) 26,336-667,317 (252,204) At Dhul Hijjah 29 591,323 2,178,974 80,922 102,381 2,953,600 Net Book Value: At Dhul Hijjah 29, 151,114 1,065,925 207,285 102,881 1,527,205 12. WAKALA BORROWINGS The Wakala borrowings are received from other financial institutions on which the Corporation pays periodic Muwakkil profit ranging from 0.4% to 1.6% per annum. The borrowings have original maturities ranging from 1 week to 3 years. 13. ACCRUALS AND OTHER LIABILITIES Accruals and other liabilities at end of Dhul Hijjah comprised of the following: Due to related parties (Note 18) 741,942 33,642,453 Accrued profit payable on Wakala borrowing 1,063,022 2,537,115 Accrued expenses 1,151,194 445,267 Dividend payable (Note 16) 3,683,065 - Other payables 3,316,184 4,867,642 9,955,407 41,492,477 14. ICD SOLIDARITY FUND This represents net accumulated income up to Dhul Hijjah 30, generated from liquid fund placements with certain conventional banks and financial institutions and donation which were not considered in compliance with the Shari ah principles. As per the recommendation of the Shari ah Committee of the Corporation, this income needs to be utilized for charitable purposes and, therefore, has been classified as a liability. The disposition of this liability is the responsibility of the Charity Committee formed within the Corporation. The sources and uses of ICD Solidarity Fund during the years ended are as follows: Sources Balance at Muharram 1 890,486 402,454 Amount transferred from income during the year 203,419 584,614 Income earned 1,131 980 1,095,036 988,048 Uses Charitable disbursements (167,523) (97,562) Balance at end of Dhul Hijjah 927,513 890,486
For the year ended Dhul Hijjah 30, (October 13, 2015) 15. SHARE CAPITAL The share capital of the Corporation at end of Dhul Hijjah comprised of the following: 19 Authorized: 400,000 (: 200,000) shares of US$ 10,000 each 4,000,000,000 2,000,000,000 Subscribed capital: Available for subscription: 200,000 (: 100,000) shares of US$ 10,000 each 2,000,000,000 1,000,000,000 Share capital not yet subscribed (1,124,723,065) (161,040,000) Subscribed capital 875,276,935 838,960,000 Installments due not yet paid (9,846,165) (39,961,720) Paid-up capital 865,430,770 798,998,280 The paid-up capital of the Corporation represents amounts received from the following members: Islamic Development Bank 393,773,507 375,000,000 Member countries 393,488,239 350,429,256 Iran Foreign Investment Company 39,969,024 35,969,024 Saudi Public Investment Fund 30,000,000 30,000,000 Bank Keshavarzi 6,000,000 5,400,000 Bank Melli 2,000,000 2,000,000 Bank Nationale D Algerie 200,000 200,000 865,430,770 798,998,280 The increase in authorized share capital of the Corporation was approved by the shareholders in the General Assembly held on Shaaban 24, (corresponding to June 11, 2015). 16. RESERVE AND DIVIDENDS Reserve In accordance with Section 1 of Article No. 33 of the Articles of Agreement of the Corporation, the General Assembly shall determine what part of the Corporation s net income and surplus, after making provision for reserves, shall be distributed as dividends only after the reserves level reach 12.5% of the subscribed capital. Dividends The General Assembly at its Plenary Sitting held on Shaaban 24, (corresponding to June 11, 2015) in Maputo, Mozambique, through resolution GA15/6/436, approved a dividend of USD 40 million in proportion to the paid-up capital held by each member as follows: (a) For the IDB, an equivalent of USD 18,773,505 to be allocated in the form of shares. (b) For the public financial institutions, cash dividend of USD 3,683,065. (c) For the member countries, the dividend of USD 17,543,430 to be distributed in the form of shares. 17. DEPRECIATION Depreciation charge for the year ended Dhul Hijjah comprised of the following: Ijarah Muntahia Bittamleek (Note 10) 12,399,336 18,040,229 Property and equipment (Note 11) 641,742 667,317 13,041,078 18,707,546
For the year ended Dhul Hijjah 30, (October 13, 2015) 18. RELATED PARTY TRANSACTIONS AND BALANCES a) Transactions with related parties Significant related party transactions for the year ended Dhul Hijjah are as follows: Nature of Amount of transactions Transactions IDB Rent 951,120 747,963 Members of General Assembly, Board of Directors, Advisory Board, Shari ah Committee & Executive Committee Allowances and fee 631,004 1,017,556 UIF and Money Market Fund Mudarib fee 309,034 1,317,702 Bidaya Home Financing Company Set-up costs 241,389 542,015 Capitas Group International Consultancy Fee - 1,108,267 Anfaal Capital Fees 56,864 - All related party transactions are conducted at mutually agreed terms and approved by the Board of Directors. b) Due from related parties: IDB - 1,701,797 International Islamic Trade Finance Corporation (ITFC) 470,211 200,490 Islamic Corporation for Investments and Insurance of Export Credit (ICIEC) 305,806 105,960 Money Market Fund 535,552 238,619 Anfaal Capital Company 56,863 495,489 Al Fareeda Residential Fund 1,320,268 1,320,268 Tamweel Africa Holding 5,396,586 1,934,355 Bidaya Home Financing Company 7,037,908 6,796,519 Capitas International Group 4,222,730 2,533,016 UIF 532,546-19,878,470 15,326,513 c) Due to related parties Waqf Fund - 33,414,874 UIF - 227,579 IDB 741,942-741,942 33,642,453 The balances due to and from related parties are mark-up free with no fixed repayment terms. d) Key management compensation The compensation paid or payable to key management personnel is shown below: Salaries and other short-term benefits 700,319 732,000 Post-employment benefits 51,125 39,873 751,444 771,873 20
For the year ended Dhul Hijjah 30, (October 13, 2015) 19. PROVISION FOR IMPAIRMENT OF ASSETS The movements in the specific provision for impairment during the years ended at end of Dhul Hijjah are as follows: Balance at Muharram 1 61,238,048 36,102,126 Charge for the year 20,091,209 27,168,915 Write off (1,879,188) - Reversal for the year - (2,032,993) Balance at end of Dhul Hijjah 79,450,069 61,238,048 The breakup of provision for impairment of financial assets is as follows: Murabaha financing (Note 6) 5,247,147 5,247,147 Accrued income and other assets (Note 7) 16,050,184 15,893,207 Installment sales (Note 8) 10,686,171 10,686,171 Investments (Note 9) 31,532,704 16,665,771 Ijarah Muntahia Bittamleek (Note 10) 15,933,863 12,745,752 79,450,069 61,238,048 20. ASSETS UNDER MANAGEMENT a) Unit investment fund The Unit Investment Fund ( UIF ) of IDB is a trust fund established under Article 23 of the Articles of Agreement of IDB. The purpose of UIF is to participate in the economic development of the member countries through the pooling of the saving of institutions and individual investors, and to invest these savings in producing projects in the said member countries. UIF s management is supervised by an Executive Committee, which is headed by the President of IDB. The Corporation manages UIF as a Mudarib and charges a Mudarib fee of 15% of UIF s net income, which is included in the statement of income under Mudarib fees. At the end of Dhul Hijjah the total assets of UIF under the management of the Corporation amounted to USD 270.99 million (: USD 282.43 million). b) Money Market Fund The ICD Money Market Fund (Labuan) LP ( MMF ) is a Labuan Islamic Limited Liability Partnership (LLP) registered under the Labuan Limited Partnerships and Limited Partnerships Act 2010 on July 22, 2014. The objective of the partnership is to earn periodic income by investing in Sharia compliant placement, investment and financing products. The Corporation acts as the Mudarib (Investment Manager), custodian and administrator of the fund and charges a Mudarib fee ranging from 0.001% to 30% of the return depending on the return percentage, which is included in the statement of income under Mudarib fees. At the end of Dhul Hijjah the total assets of MMF under the management of the Corporation amounted to USD 270.78 million (: USD 85.45 million). 21
For the year ended Dhul Hijjah 30, (October 13, 2015) 21. NET ASSETS IN FOREIGN CURRENCIES The net assets denominated in foreign currencies as at Dhul Hijjah 30, were USD 160.4 million (: USD 109.1 million). The currency wise break-up of net assets in foreign currencies at the end of the years in USD equivalents are as follows: Saudi Riyals 81,701,197 66,442,509 Pakistani Rupees 18,620,226 18,323,483 Kazakhstani Tenge 11,649,000 8,334,485 Indonesian Rupee 3,803,136 5,907,154 Jordanian Dinar 5,350,995 8,297,468 Euro 39,804,753 1,838,796 Sterling Pounds 68,720 1,542 Malaysian Ringgit 57,602 - Emirati Dirham (626,191) - CFA Franc (XOF) (2,532) - 160,426,906 109,145,437 22
For the year ended Dhul Hijjah 30, (October 13, 2015) 22. CONCENTRATION OF ASSETS (a) Concentration of assets by geographical areas at end of Dhul Hijjah is as follows: Member Countries: Cash at banks Commodity placements and Murabaha financing Installment sales financing Investments Ijarah Muntahia Bittamleek Accrued income and other assets and property and equipment Africa - 140,076,429 72,741 307,905,215 33,622,706 36,224,055 517,901,146 365,065,492 Asia 42,263,052 314,918,957 147,887,542 536,921,087 34,592,154 115,808,364 1,192,391,156 1,155,896,963 Total assets 42,263,052 454,995,386 147,960,283 844,826,302 68,214,860 152,032,419 1,710,292,302 1,520,962,455 Total Total (b) Concentration of assets by economic sector at year end Dhul Hijjah is analyzed as under: Cash at banks Commodity placements and Murabaha Financing Installment sales financing Investments Ijarah Muntahia Bittamleek Accrued income and other assets and property and equipment Public utilities - - - - - - - 850,000 Financial services 42,263,052 398,653,500 147,960,283 516,627,459-31,125,010 1,136,629,304 986,414,210 Industry and mining - 32,069,690-53,337,944 65,023,862 96,820,858 247,252,354 364,363,147 Social services - 24,272,196-274,860,899 3,190,998 722,611 303,046,704 161,228,265 Others - - - - - 23,363,940 23,363,940 8,106,833 Total 42,263,052 454,995,386 147,960,283 844,826,302 68,214,860 152,032,419 1,710,292,302 1,520,962,455 Total Total 23
For the year ended Dhul Hijjah 30, (October 13, 2015) 23. CONTRACTUAL MATURITIES OF ASSETS AND LIABILITIES The contractual maturities of the Corporation s assets and liabilities according to their respective periods to maturity or expected period to cash conversion at end of Dhul Hijjah are as follows: Maturity Less than 3 months 3 to 12 months 1 to 5 years Over 5 years period not determined Total Assets Cash at banks 42,263,052 - - - - 42,263,052 Commodity placements and Murabaha financing 262,298,724 133,851,414 55,648,304 3,196,944-454,995,386 Installment sales financing 18,875,431 59,435,463 69,649,389 - - 147,960,283 Investments - 3,132,250 10,417,945-831,276,107 844,826,302 Ijarah Muntahia Bittamleek 4,800,623 14,815,145 48,599,092 - - 68,214,860 Accrued income and other assets and property and equipment 43,215,805 107,357,510 1,459,104 - - 152,032,419 Total 371,453,635 318,591,782 185,773,834 3,196,944 831,276,107 1,710,292,302 Total 252,077,930 328,160,360 216,688,428-724,035,737 1,520,962,455 Liabilities Wakala borrowings 81,651,742 501,900,773 100,000,000 - - 683,552,515 Accruals and other liabilities 9,955,407 - - - - 9,955,407 ICD Solidarity Fund 927,513 - - - - 927,513 Total 92,534,662 501,900,773 100,000,000 - - 694,435,435 Total 159,049,630 232,999,113 160,000,000 - - 552,048,743 24. SHARI AH SUPERVISION According to Article 29 (1) of the Articles of Agreement of the Corporation, the Corporation shall have a Shari ah Committee. As a member of the IDB group, the Corporation utilizes the IDB Group Shari ah Committee. The Committee rules on whether a certain category of investment is Shari ah compliant and considers any questions referred to it by the Board of Directors, the Executive Committee or Management of the Corporation. 25. RISK MANAGEMENT a) Credit Risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Corporation is exposed to credit risk in both its financing operations and its treasury activities. Credit risk arises because beneficiaries and treasury counterparties could default on their contractual obligations or the Corporation s financial assets could decline in value. 24